Wicelandic Post

BBC

Iceland’s president said on Tuesday he would not sign into law a bill to repay more than 3.1 billion lost by savers in Britain and the Netherlands when the island’s banks collapsed, creating fresh political turmoil for the crisis-hit country. President Olafur Grimsson’s rejection of the bill is seen putting aid from international lenders, as well as aspirations to join the European Union, in serious jeopardy. Financial aid is vital for Iceland in the wake of its economic meltdown.

Reuters

The issue centres on the compensation paid to Icesave account holders by the UK and Dutch governments after the online bank, part of Landsbanki, collapsed in October 2008. Both governments have demanded that Iceland repay this debt. However opponents have claimed that Iceland, whose economy has been badly damaged by the financial crisis, cannot afford the repayments.

A petition urging Grimsson not to sign the bill had attracted 62,000 signatures by last night – a quarter of Iceland’s population. Opinion polls suggest that a majority of Icelanders are opposed to the deal.

It is not clear when the referendum will be held. Analysts have warned that Iceland’s aid payments from the International Monetary Fund may be frozen until the issue is resolved. Supporters of the legislation have also warned that if Iceland does not repay the money then its efforts to join the EU could be badly damaged.

Guardian

Britain said Iceland must meet its “obligations.”

Some 320,000 British and Dutch savers were hit when the internet bank Icesave failed.

The two governments moved to compensate their citizens and Iceland had in turn been due hand the cash over to the two countries.

The bill was passed by Iceland’s parliament last month after weeks of heated debate.

But the move triggered outrage among disgruntled Icelanders who are struggling as the country’s economy flounders.

SKY News

The Icesave dispute has poisoned relations with Britain and the Netherlands, and Icelandic officials had hoped they were putting an end to it. The friction has complicated the country’s efforts to regain access to international lending to rebuild its economy, which shrank at an annual 7.2 percent rate in the third quarter.

NY Times

“Now the people have the power and the responsibility in their hands,” Grimsson said. “It is my sincere hope that this decision will lead to permanent reconciliation and prosperity for the people of Iceland, at the same time laying the foundations for good relations with all other nations.”

The U.K. Treasury said Tuesday it will consult with the European Union on how to resolve the situation.

“The treasury will consult with colleagues in Iceland to understand why this bill has not been passed and will work with them, the Netherlands and within the E.U. to resolve this issue as soon as possible,” a U.K. Treasury spokesman said.

The Dutch government registered disappointment in the veto and said it is considering its next steps and will speak to the U.K. government soon to determine what to do. “No solution is unacceptable to us,” a government spokesman said.

Wall Street Journal

Standard & Poor’s on Dec. 31 raised its outlook on Iceland’s BBB- rating to stable from negative and said parliament’s ratification of the depositor bill is a step “that will contribute significantly to securing crucial external financing throughout 2010.”

Fitch Ratings, which also ranks Iceland’s debt one level above junk, said on Dec. 23 that a resolution of Icesave represents an “essential component” in determining whether its negative outlook on the rating will end in a downgrade.

The presidential veto interrupts a series of settlements needed to rebuild the economy, which was the worst hit in the western world after the credit crisis.

The Social Democrat, Left Green coalition of Prime Minister Johanna Sigurdardottir, which has been working for the past year to resurrect the island’s financial system, said last month it completed a bank recapitalization plan after creditors accepted settlements. Iceland’s three biggest lenders collapsed in October 2008, leaving about $80 billion in outstanding claims.

Business Week / Bloomberg

Leaders staring at a deficit in the polls and facing an election can sometimes benefit from a crisis on the foreign stage — but only if they emerge triumphant.

Gordon Brown will be hoping the extraordinary standoff with Iceland ends with a victory in his favor, but what can he do to ensure it? Might he invade? Or send gunboats, as Britain did during its last fight with Iceland in the 1970s Cod War? That was a “war” over fish — this time it’s about money.

Iceland’s president has decided to veto a bill to compensate British and Dutch depositors for the $5.5 billion in losses from the collapse of Icesave, the popular Internet bank that folded in the financial crisis. After much public pressure, there will be a referendum that will almost certainly block the bill.

This extraordinary development jeopardizes stricken Iceland’s attempts to join the EU, which wants the money paid to the U.K. and the Netherlands. Here one suspects that the Icelanders are about to find out how the EU works. If they dare vote no in the referendum, they can always be asked to vote again, and again and again. Until they get the right answer.

(*) It is unlikely, but you never know…

Wall Street Journal

Earlier on Tuesday, the Icelandic president refused to sign into law a bill to repay more than $5 billion lost by savers in Britain and the Netherlands, calling for a referendum and stirring fresh turmoil in the crisis-hit country.

“It is debatable whether it is politically and constitionally correct for the president to use his right to submit the issue to a national referendum when it concerns an international issue such as Icesave where the govt seeks to honour its international committments,” she(Johanna Sigurdardottir) said in a statement.

“Uncertainty or upheaval in the formal dealings with others countries can have unforeseen wide-ranging and potentially damaging consequences for our society.”

Reuters

His decision marked only the second time since Iceland gained independence in 1944 that the president has refused to sign legislation and represented an act of defiance against Jóhanna Sigurðardóttir, prime minister, whose ruling coalition backed the bill.

It also threatened to deepen the diplomatic dispute with Britain and the Netherlands over the lost money and jeopardise the $10bn economic rescue programme set up by international donors after the collapse of Iceland’s banking sector in 2008.

Iceland’s government has been struggling for months to secure domestic backing for a deal to reimburse the two countries for savings lost in the Icesave arm of Reykjavik-based Landsbanki. But the pact has faced fierce resistance from opposition parties and much of Iceland’s 320,000-strong population, amid criticism that the terms are unfair and would lumber the country with unmanageable debts.

&

British officials refused to be drawn on the likely implications of Iceland abandoning the deal. However Mr Darling warned on Monday that failure to pass the law would “make things much more difficult”, hinting at the potential consequences for Iceland’s bid for EU membership.

There is little appetite in Whitehall to further soften the terms of the loan agreement that was already regarded as generous, giving Iceland an effective grace period of seven years to rebuild its economy.

A Treasury spokesperson said: “The Treasury will consult with colleagues in Iceland to understand why this bill has not been passed and will work with them, the Netherlands and within the EU to resolve this issue as soon as possible.”

Wouter Bos, the Dutch finance minister, said the decision not to sign was “disappointing” and said he expected a speedy explanation from the Icelandic government of what steps they would now take. “In any case, the Netherlands will maintain that there is an obligation for Iceland to pay,” the finance ministry said in a statement. The Dutch plan to discuss the matter with the British government.

Financial Times

“The decision could plunge Iceland into a deep financial black hole. The president’s decision means that it will be nearly impossible for Iceland to borrow money abroad”

Business.dk

The refusal by Iceland’s President to sign legislation to reimburse $5.5 billion lost by U.K and Dutch depositors in an online bank could delay payouts of a Nordic rescue loan to the crisis-ridden country, a Finnish government official said Tuesday.

“Of course, it is possible that it could delay (payouts) somewhat,” Ilkka Kajaste, deputy director general at the Finnish Finance Ministry, told Dow Jones Newswires.

Wall Street Journal

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